Appeal from the District Court of the United States for the Eastern District of New York.
Before L. HAND, SWAN, and AUGUSTUS N. HAND, Circuit Judges.
AUGUSTUS N. HAND, Circuit Judge.
The following facts appear from the pleadings and the papers filed on a motion by the United States for a summary judgment against the defendant Long Island Drug Company, Inc.:
On the May 1933 list the Commissioner of Internal Revenue assessed a distilled spirit tax against the defendant Charles Steinberg and others in the amount of $8,393.55. The list was signed July 1, 1933, and received in the office of the Collector of Internal Revenue on or about July 6, 1933. A notice and demand was made by the Collector on Charles Steinberg on July 14, 1933, and, owing to failure to make any payment on account of the tax, a warrant of distraint was issued on September 16, 1933.
On April 15, 1936, a notice of lien in the amount of $11,274.79 was filed in the office of the Clerk of the United States District Court for the Eastern District of New York, and in the office of the Register of Queens County. This sum included the assessment of $8,933.55, plus penalty and interest. On the same date notice of levy, copy of the notice of lien and of the warrant of distraint filed in the office of the Clerk of the District Court was served on the defendant Long Island Drug Company, Inc.
On June 17, 1936, another notice of lien was filed in the office of the Clerk of the District Court and with the Register of Queens County in the amount of $436.89 representing accrued interest in addition to that included in the previous notice of lien. On June 17, 1936, a notice of lien in the amount of $11,711.68, the amount specified in the notice of lien of April 15, 1936, plus the recent accrual of interest was served on Long Island Drug Company, Inc.
Finally, on March 7, 1939, the Long Island Drug Company, Inc., was served with a notice of levy in the sum of $12,777.65, a copy of the warrant of distraint, and a final demand for the surrender of $12,777.65 of the money, credits, property and property rights belonging to Steinberg, stated to be then in possession of the Long Island Drug Company, Inc.
At the time of the service of the first notice and demand on April 15, 1936, Steinberg was indebted to the Long Island Drug Company in the sum of $4,711.13 on account of overdrawn salary. Since that date there accrued to Steinberg on account of salary due from the Drug Company $37,161.61. After deducting the $4,711.13 there remained a balance of the accrued salary which amounted to $32,450.52. During the period between the date of service of the notice of lien on April 15, 1936, and the time when the last notice of levy was served on March 7, 1939, the Drug Company had loaned $40,677.16 to the wife of Steinberg. Steinberg was either a joint maker or endorser of the notes given by Mrs. Steinberg to the Drug Company for the sums she borrowed and he had agreed with it after April 15, 1936, that he would guarantee the repayment of the loans and that any salary that he might thereafter become entitled to might be applied toward such repayment.
This action was brought to enforce a statutory liability of the Long Island Drug Company, Inc., arising because of its refusal to surrender to the Collector of Internal Revenue $12,777.65 alleged to be subject to distraint as property and rights of property of Steinberg.
The answer did not deny the allegations of the complaint and in the government's affidavits of service of notice and demand of taxes due under the assessments against Steinberg, nor did it deny that the Drug Company had failed to surrender his rights of property to the Collector. It did deny that the Drug Company was in possession of any rights of property of Steinberg at the time of the service of the notices upon it.
Upon a summary motion against the Long Island Drug Company, Inc., the District Court directed judgment for the United States in the sum of $12,777.65 plus interest and costs, amounting in all to $12,851.66. The Drug Company appeals on the ground that any lien which might exist upon the salary of Steinberg was not prospective and, therefore, wsa not imposed upon earnings of Steinberg accruing after the notice and demand of March 7, 1939, which were previously applied in accordance with the agreement of the parties to the repayment of the loans made to Mrs. Steinberg. We find no proof that the Drug Company was in possession of any property belonging to Steinberg when the Collector demand the surrender of $12,777.65 on March 7, 1939, in payment of taxes. We think that no case was made requiring payment of the sum by the Drug Company and that the judgment must accordingly be reversed.
Provisions relating to the collection of taxes are contained in 26 U.S.C.A. Int. Rev. Code.*fn1
It seems reasonably clear that under the provisions of § 3690 the indebtedness of a third party to a taxpayer is subject to distraint. That section, among other choses in action, specifies "bank accounts, and evidences of debt". Under § 3710: "Any person in possession of property, or rights to property, subject to distraint, upon which a levy has been made, shall, upon demand by the collector * * * surrender such property or rights to such collector * * * ." We think that the language quoted from § 3690 and § 3710 is broad enough to include the claim of Steinberg against the Long Island Drug Company, Inc., in so far as it had accrued when demands of payment were made by the Collector. This conclusion seems warranted by Matter of Rosenberg's Will, 269 N.Y. 247, 199 N.E. 206, 105 A.L.R. 1238; United States v. Canfield, D.C. Cal., 29 F.Supp. 734; Karno-Smith Co. v. ...